The Atlanta Federal Reserve Bank puts out a GDP now forecast of upcoming monthly GDP growth, and its latest estimate puts growth at the highest level since the 1980s, as we recover from the COVID-19 pandemic.
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2021 is 8.3 percent on April 16, unchanged from April 15 after rounding,” said the Atlanta Fed. “After this morning's housing starts report (last week) from the U.S. Census Bureau, the nowcast of first-quarter real residential investment growth decreased from 10.6 percent to 10.2 percent."
However, new-home sales’ figures Friday showed even faster residential investment growth ahead, reports the US Census Bureau.
Sales of new single-family houses in March 2021 were at a seasonally adjusted annual rate of 1,021,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 20.7 percent (±23.7 percent) above the revised February rate of 846,000 and is 66.8 percent (±36.7 percent) above the March 2020 estimate of 612,000.
The problem is not finding more ways to boost GDP growth, per se, but how it will be utilized. Since the 1980s, a growing percentage of the Gross National Income derived from GDP growth has gone to ‘rentiers’, i.e., people that receive income from their assets rather than wages.
That is in part due to the huge decline in personal and corporate taxation of said wealth that has allowed rentiers to accumulate more private wealth, rather than investing in productive enterprises.
What creates GDP? The aggregate, or effective demand of all goods and services produced domestically. Economists have broken it into four components, of which consumer spending is the largest portion. The rest is made up of net exports, government expenditures, and investments.
Consumers spend on private consumer goods, so it is up to investment and government spending to build for future growth. That has not happened because corporations haven’t been maintaining a decent level of capital expenditures and government investments in infrastructure, education, R&D, and our social safety net that would keep workers healthy enough to be more productive has been cut sharply since the 1970s.
GDP growth has been paying too little for future generations since then, in other words, so taxing some of the wealth accumulated since 1980 is needed to pay it forward.
President Biden’s $2.3 trillion American Jobs Plan is meant to correct the underinvestment in the public good. He is calling for more than $1 trillion to be invested just in the various components of infrastructure, including better roads, bridges, public transportation, expanding broadband and electric grids, as well as electric vehicle use.
He is also calling for more spending on health care and the national housing shortage—some $213 billion to “build, preserve and retrofit more than 2 million homes and commercial buildings to address the affordable housing crisis,” $100 billion to modernize public schools and early learning facilities, and $180 billion in research and development of future technologies, and more.
This supports much more than infrastructure, as it fulfills every person’s basic need of food, shelter, and security.
The initial first quarter GDP estimate comes out Thursday, and consensus predictions are for 7 percent growth. Whatever it will be, it is important that it be used in productive ways, and the just-passed American Recovery Act and upcoming American Jobs Plan begin that process of utilizing America’s economic growth to support a better future for all Americans.
Harlan Green © 2021
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